1) ... The failure of credit commenced July 1, 2014.
On Tuesday, July 1, 2014, the world passed through a historic economic inflection point, as Credit Investments, that is Aggregate Credit, AGG, specifically the 30 Year US Government Bonds, EDV, the 10 Year US Government Notes, TLT, and Junk Bonds, JNK, failed, as the Bond Vigilantes called the Interest Rate on the US Ten Year Note, ^TNX, higher from 2.49% to 2.56%, and which in so doing traded lower from a double top high.
The trade lower in the US Sovereign Debt, means the end of the era of US Dollar Hegemony, establishes the beginning of the end of the US Dollar Hegemonic Empire, and communicates the end of Global Finance. Inverse Credit Investments, such as JGBS, SAGG, TMV, DTYS, and TTT, traded higher.
Of note, the Bond Vigilantes also steepened the 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX; seen in the Steepner ETF, STPP, steepening.
Currency traders called the Japanese Yen, FXY, lower, and the British Pound Sterling, and two Commodity Currencies, CCX, these being the Australian Dollar, FXA, and the Canadian Dollar, FXC, higher, with the result that most Equity Investments, that is World Stocks, ACWX, traded to new rally highs, as funds flowed out of the Credit Investments, that is Aggregate Credit, AGG, as global debt deflation commenced on July 1, 2014.
The failure of Credit, AGG, on Tuesday, July 1, 2014, propelled the world into Kondratieff Winter, is a painful economic experience, as it involves a see saw destruction of Fiat Wealth, such as the Eurozone Stocks, EZU, and Eurozone Nations, such as Ireland, EIRL, and Greece, GREK.
Junk Bonds, JNK, traded parabolically lower; these are now a failed investment. Reuters reports Global Investors Pare Risky Bond Holdings, Brace For Sell-off
The 30 Year US Government Bonds, EDV, and the 10 Year US Government Notes, TLT, traded decisively lower. The Pursuit of Yield Rally, that commenced in January 2014, ended on July 1, 2014.
The Global Credit Bubble has burst, debt deflation commenced with the failure of credit on July 1, 2014, with the result that the world is starting to pivot from the age of credit and currencies, and into the age of diktat and debt servitude.
The trade lower in Credit Investments, AGG, is a profound historic change, as debt has been the engine of growth; the global economic future is one of economic deflation, now that debt is trading lower in value.
The fact that destructionism is starting to replace inflationism establishes the fact that the world has entered into Kondratieff Winter, the final phase of the Business Cycle.
2) .. The world central banks will develop macroprudential policies and macroprudential tools for financial system stability, and in so doing will lead the way into regional fascism.
Liberalism, meaning freedom from government, was fathered by Milton Friedman, who heralded monetary freedom through his Free To Choose Doctrine, and was characterized by wildcat finance, a Doug Noland term, where bankers waived magic wands of credit creating prosperity.
The new paradigm of authoritarianism is emerging. It was heralded by Angela Merkel who said said on November 8, 2013, "We cannot stop halfway. We have to be creative: We have to find our own new solutions." (The EurActiv Institute, "Merkel Preaches Federalism to MEPs, Warns Britain against EU Exit".) It is fathered by Mario Draghi, and is characterized by wildcat governance, where regional fascist leaders waive heavy clubs of diktat enforcing austerity.
The ECB chairman on June 5, 2014, in NIRP and Targeted LTRO Announcement called for a charge on money held at the ECB,, and on June 14, 2014, in ECB Press Announcement called for shared sovereignty.
Both Mario Draghi, announcements are designed to address secular stagnation, defined as low growth, low employment, and low inflation; yet both introduce monetary controls.
Mike Mish Shedlock posts Spain Issues Retroactive 0.03% Tax on Bank Deposits to "Boost Economic Growth and Job Creation". Via translation from Libre Mercado, Spain will retroactively tax bank deposits to January 1, 2014 stating the move will boost growth and job creation
Yes, Spain is coming out with "A tool for economic growth and job creation".
There will be many such mandates, that is economic diktat, coming from Eurozone leaders, especially the ECB. The forthcoming diktat; will be "macroprudential regulation tools" designed for financial system stability, as central bank leaders turn away from traditional interest rate policies.
David Wessel posts in the WSJ Central Bankers Appear to Line Up their Defenses ... And Create The Macroprudential Maginot Line. It looks like there has been some international coordination of monetary policy rhetoric lately.
With price and wage inflation not a concern right now, we aren't going to raise interest rates and throw a lot of people out of work to avoid excesses in financial markets or to head off possible asset bubbles, they said. There may come a day when our worries about financial stability will prompt us to hike interest rates, but rates are "the last line of defense." Not now. The "first line of defense" is making the financial system more resilient so it can better withstand shocks and using our supervisory and regulatory "macroprudential tools" to rein in excesses, as we are doing now.
This inquiring mind asks, just what are "macroprudential policies", and "macroprudential tools" for financial system stability? And what might they include?
Macroprudential tools are central bank regulations designed for financial stability; frankly they are quite blunt central bank clubs; these tools might be exit taxes from bond funds, another might be capital controls, and yet another might be for banks everywhere to be integrated with the government and be known as the government banks or gov banks for short. In the US most every bank, that is Money Center Banks and Regional Banks, have US Government Treasury Notes, TLT, residing at the Fed. As the Benchmark Interest Rate, $TNX, rises banks might be tempted to withdraw these monies from Mother Fed. So I believe the Fed will put a hold on such action and start to integrate banks into the Fed.
The Fed will be changing and morphing into the North American Fed, and will become the Atlantic compliment to the ECB, that is a North American Continent, that is Canada, Mexico, and America Regional Central Bank, which will serve as the singular banking institution for CanMexAmerica, that is the Regional Financial Hub, for the soon coming North American Union.
3) ... What constitutes a sound investment strategy?
Jeremy Hill of Forbes writes Smart Equities For Creeping US Inflation. Basic materials is the primary sector for long positions to take advantage of creeping inflation.
But such thinking fails to perceive that inflationism in fiat wealth is over through and done.
Global debt deflation is introducing destructionism of every form. Deleveraging out of currency carry trades and derisking out of debt trades is going to literally destroy fiat wealth.
The chart pattern in two of his recommendations show completion. LyondellBasell Industries NV, LYB, a popular currency carry trade, manifested a massive dark cloud covering candlestick; and International Paper, IP, a popular debt trade, manifested a blow off market top candlestick
One could commence a short selling investment strategy, and use these Inverse Market ETFs, such as XVZ, as the basis of collateral, as a huge number of short selling opportunities exist, such as Manufactured Home Builder, CVCO, Tool Manufacturer, MKTAY, and Property Manager, Z, all of which are at their market peak.
The best investment strategy is one designed for the failure of credit and the death of currencies.
Short Side of Long posts June Sentiment Report Hedge Funds Have Been Covering Their Short Bets On PMs. Technically speaking, PMs sector still remains in a downtrend and have to overcome quite a few resistance levels before a bull market is to return.
My take is that those covering their shorts will capitulate, as Equity Investments, VT, Nation Investment, and Small Cap Nation Investment, EFA, Global Financial Institutions, IXG, and Yield Bearing Investments, such as DTN, trade lower, and that an investment demand for gold, GLD, commenced on June 21, 2014, as a wild bout of purchasing of Gold Mining Stocks, GDX, drove Spot Gold, $GOLD, from $1,275 to $1,315.
I expect the US Dollar, $USD, UUP, to trade higher for a brief period of time as Sovereign Currencies trade lower for a while, and thus for Spot Gold, $GOLD, to trade lower to $1,285, before it soars ever higher on the failure of Credit, AGG, and the death of Currencies, DBV, CEW, that is on the death of fiat money. Gold is in the middle of an Elliott Wave 3 Up, that is in the middle of the most sweeping of all economic waves, specifically the one which creates the bulk of the wealth on its way up to an Elliott Wave 5 High.
The trade lower in the price of gold, if it does occur, makes for an excellent buying opportunity, as in a bull market one buys into price dips, just as in a bear market, one sells into pips.
In understanding the value of gold, it is helpful to understand its relationship to empire. Robert Ramsey posts Hidden Secrets of Money II, The 7 Stages of Empire. One of the hidden secrets of money is that each empire goes through 7 stages.
I recommend that one start to dollar cost average an investment in the physical possession of gold bullion; it can be held
in audited vaults, and spread around the world for safety, and covered by an insurance policy.
in physical Internet Trading Platforms, such as GoldMoney or BullionVault, and sold as needed.